U.S. housing giants are city-sized property owners

March 8, 2010

Home ownership in the United States ranks up there with apple pie and motherhood. The government has championed it for decades, through tax breaks, mortgage guarantees and most recently the Herculean task of keeping Americans in their homes after the housing market collapse. But government subsidies of the American Dream also have a darker side: when things head south, taxpayers end up on the hook.

Government-run mortgage agencies Fannie Mae  and Freddie Mac owned more than 131,000 properties between them at the end of 2009, according to recent annual filings. That’s roughly the equivalent of San Francisco’s owner-occupied housing stock — and it’s up substantially from 2008, despite the two giant companies’ efforts last year offloading nearly 200,000 units that they ended up with after their previous owners defaulted.

And things are set to get worse. Barclays Capital estimates the pipeline of severely troubled loans at around 5 million across the United States. Modification programs, which should help some borrowers stay in their homes, have also delayed the inevitable forfeiture of many others.

Fannie and Freddie are on the hook because they provided guarantees for the benefit of mortgage investors. Between them, they back around $5 trillion of U.S. home loans. Such support — once implicitly and now explicitly backstopped by the Treasury — has handed borrowers relatively low financing costs for years. Now, though, the result is that aside from the huge financial burden they place on taxpayers, the two companies have been amassing foreclosed properties and, in a few cases, have become landlords.

It’s a tiny part of their operations for now. But if the housing market doesn’t turn around soon, they could find themselves reluctantly managing more properties. And no-one expected — or wants — Fannie and Freddie to become giant public sector landlords.

The immediate task is to clean up the mess, but policymakers need to think about the longer term. That means recognizing that the policy benefit of subsidizing home ownership has reached its limit — and starting to take the government out of the mortgage guarantee business altogether.

Comments

The government needs to remain in the mortgage guarantee business as long as it exists, because the banking system has not taken responsibility for the long term effects of their long term loans – but is academic. The government must stay in the land business as well. The government of the Communist Chinese, however, must be forced out of the American financial economy immediately. It was and is their aggressive interference that caused the recent financial turmoil. They have no place in the American economy and should never have been allowed to buy securities with their worthless money – it is a crime to continue paying them American dollars on investments made with their worthless paper ‘generated’ from their slave economy.

Posted by cranston | Report as abusive
 

Welcome to 1970′s Britain. Local government was landlord to millions through council housing estates that became magnets for crime.

My wife is from Russia. Apparently their government (the figurehead of the social collective if you like) used to own everything. She says one problem with this is that nobody feels like they “own” the property, so nobody feels like it’s their responsibility to look after it.

“the policy benefit of subsidizing home ownership has reached its limit” – could not be more correct.

Social housing has its benefits – in a constrained market with a limited supply of predatory landlords and an oversupply of potential tenants, you need social housing to help balance the market by providing an alternative option. Most American states/ cities are not in that position. So it’s wrong to pretend that even the least credit-worthy should be able to afford to own their own home. It’s wrong to distort the market with that kind of “support”, especially when it’s propped up with the taxpayers money.

Posted by compsci | Report as abusive
 

Ironically, it’s the adoption of home ownership as a social and political value that made it harder to attain for many:
In the long run, differential taxation, and direct subsidies have inflated the prices of residential real estate, and were at the source of the recent bubble, which is still deflating.

Posted by yr2009 | Report as abusive
 

I agree 100%. Inflationary policies of goverment are directly responsible for this bubble. And government want to continue bubbling up. What would it lead to? Million $$ for loaf of bread?
Like in Germany after World WarI?

Posted by pinur | Report as abusive
 

There’s a double jeopardy in home ownership.

Conservatives equate property ownership with personal freedom. Or, that property ownership guarentees your freedom.

That’s a silly idea, since freedoms are provided by our system of laws.

But in America, if you lose your house because some slime mortgage-lender originally sold you a sub-prime,
the feeling is you become a second class citizen.

But all Americans are equal citizens anyway.

Conservatives, bent on preserving and magnifying social inequality in this land, through proverty ownership(haves vs. have nots) are working against a cohesive society.

It’s time to realize the American dream lies in a ‘we’ society, where America takes car of its own, rather than a ‘me’ society, or dog eat dog.

Currently this society belongs to the rich. To the ‘haves’. It is their burden to keep the rest of American solvent, healthy, and working, and to shoulder the deficits. They certainly have the wealth to do it.

Left Blog

http://leftsolutions.wordpress.com/

Posted by reverse_cloud | Report as abusive
 

I noticed that there is actually less of a benefit to home ownership. The tax incentives are outweighed by liability. The liability includes every downfall that there is to home ownership. This includes…losing your job! When a job is lost; it is impossible to renegotiate a mortgage. When a mortgage can’t be renegotiated; the house is lost. So…when looking at jobless rates, see is they correlate to job loss; then see if that matches outsourcing and company closures. Everything is linked together, it’s a matter of whether people want to acknowledge it or not.

As economic conditions spiral down, those prepared for the ride acknowledge the delicate balance which must exist to maintain. Keeping the eyes open prepares you for a hard landing. We also must acknowledge that the wealthy only know how to take (unless there is a tax incentive). They must have their luxury in life. After all, what would we possibly do if the extremely wealthy don’t have their luxury and guaranteed retirements…

Posted by JTX | Report as abusive
 

Dog eat dog works because the cream rises to the top. That’s how in a scant 200 years this country became a Superpower. The idea that you can foster excellence by everyone holding hands is contrary to EVERYTHING that worked to build the greatest nation on Earth. The problem is that liberals create programs that destroy ambition, as recently demonstrated via the mass foreclosures and repossessions in the aftermath of liberals handing mortgages and cars to the barely qualified.

Posted by GLK | Report as abusive
 

Things are so bad in the housing market now that 1/3 of total foreclosures are strategic. Folks are so desperate to get out from under an underwater mortgage that they are willing to hose their credit score for seven years

Posted by STORY-BURN | Report as abusive
 

1 in 4 mortgageholders realize there’s no way they can catch up, for years and year and years. Meanwhile they are paying out their ears, losing more of their savings, month after month.

So you want to cling on to your Titanic, even after it slips underwater?

This is why banks are running scared.

Not much sympathy. The banks were the ones pushing those sub-primes. Now the chickens have come home to roost.

Posted by reverse_cloud | Report as abusive
 

Singapore seems to work well with the government owning about 85% of the land there. Perhaps the world needs some new economic experts.

Posted by diddums | Report as abusive
 

Try buying a house for cash sometime. Or a car, for that matter.

The fact that that’s not what they want to sell you ought to tell you something about the Western banking system and the parasitic nightmare behind it.

Posted by HBC | Report as abusive
 

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